Canada’s personal finance tax cliff: are we there yet?

Today we hear a lot about the US economy approaching the so-called “fiscal cliff.” What about your personal financial affairs? Are you on the fiscal cliff as we creep into 2013? Canadians are burdened with debt. On a monthly basis, we read about the increase in the debt-to-disposable income ratio which is now hovering around the precarious level of 164%.

Although the world and many at home praise our government for its brilliant fiscal management, few are warning of unsustainable levels of personal debt. In fact, our head of the central bank, Mark Carney, accepted an appointment to a similar position at the prestigious Bank of England. Will your legacy here be that of hero or villain? Will history show that you kept interest rates low for too long, encouraging many people to take on debt they cannot pay?

To his credit, he, our finance minister, and the prime minister have been warning Canadians about these dangerously high levels of personal debt. However, Carney could curb the increase by raising interest rates. Of course, higher rates will slow down the current slow economic growth. Still, I think the short-term pain is better than the likely collapse in personal finances that could occur if debt remains at current levels or increases.

What can Canadians do to avoid their fiscal cliff? Let’s examine three vital steps.

  1. Accept that you are dangerously leveraged.
  2. Establish a mechanism for living with a declining debt
  3. Develop a new vocabulary to guide your behavior.

Accept that you are dangerously taken advantage of

You cannot solve a problem unless you acknowledge it. Do you think you have too much debt? Your banker may say no; however, only you can answer this. Wear a helicopter view. What are your and your family’s emotional responses to your debt? You are worried? You can not sleep? If so, you have too much debt. Certainly look at the proportions, but this is the key barometer.

The emotional cost of debt is the first and most significant cost. If the debt is 10% of income and it is causing problems for you or at least one of your family members, it is too much. Still, you must come to terms with reality and decide to live with it, not take on any more, and start a debt-free lifestyle.

If you are a Christian, give this emotional stress to Jesus (Matthew 11:28).

Establish a mechanism for living with decreasing debt

People are impatient. We live in a now society. Unfortunately, you probably went into debt for a long period, and you are likely to go out for a long period. Accept this fact and learn to live with it.

Develop a strategy for living in debt. Look how you got there; write principles to avoid repetition; and then write a financial plan, alone or with help. The plan should concisely show how, by following its principles, you could be debt free at a specific time.

If you got into debt because of impulsive spending, you could develop the principle of never buying without a list and a budget. Also, when you feel like you need to spend, you may want to wait 24 to 48 hours, during which time you would talk to your responsible spouse or partner.

You will need to find what might work for you, decide if you need help, and try to get it.

Prepare a debt meter and put it on your refrigerator. On a monthly basis, as you pay off debt, adjust the debt meter.

Develop a new vocabulary to guide your behavior.

This sounds easy, it’s simple, and when you get it, it will be your most effective debt management “tool.” What you create will decide how you will behave. If you think emergencies happen and they cause you to spend erratically, you won’t change your behavior. However, if you feel that most “budget emergencies” aside from time can be planned and should be planned by setting aside funds regularly to meet them, you will plan accordingly.

Your car will need repairs. You will need new tires. Your oven will turn on and so on. The problem here is timing. You don’t know when these potential budget busters will happen. Even so, you know they will happen, so create a capital fund, an emergency fund, an emergency fund, or some other means of saving for these predictable events. If you accept this fact about emergencies and understand that to get there you must sacrifice consumption today, this is the beginning of your great victory over debt.

Another key vocabulary change is accepting that you can’t eat money, you can only control your behavior – switch from money management to lifestyle management.


As you enter 2013, look at your finances. You will know if you are on the fiscal cliff. Rest assured that you do not need more money to spend, first you have to accept where you are. Next, set up a mechanism to live where you are while working to pay off your debts. Then examine your vocabulary, your beliefs and adjust them to reality.

I pray that you will steer clear of seductive and easy credit and begin to steer clear of debt.

(c) Copyright 2012, Michel A. Bell